I really don't know to be honest. Critics are all over the place in terms of what they rate as a "good" JRPG. I personally want to see more focus on challenge, not only in this genre, but in all of them. Too many easy as hell games these days.

Bit misleading there. WRPGs were few and far between on the PS2. Even the Xbox only had a handful. They started to migrate to the consoles with the current generation, as WRPG developers are (were) almost universally PC developers, and the current consoles are basically stripped down PCs.

you had to junction magic to your characters in order to get stats up to where they needed to be.  Then, since magic was something you mined in this game instead of learning, you had to either break items down, steal it from creatures, or mine it from magic wells or something like that.  Basically, it was a stupid system for character building and you couldn't survive past the second disc unless you spend hours mining magic spells to junction to your character.  

I honestly don't remember any of that. I got to the part where you wake the bitch up from outerspace and board the thing that is flying over the city. The boss you met in there kept kicking my ass and i gave up

its because the game was so complicated you didn't even know about this crap

Western gaming has taken over. The genre will stay strong and will still have a large dedicated fanbase, but it will never be like it was before.

To me it's a cycle. At times, I enjoy a good old school style JRPG. And like the relaxing turn-based gameplay style.
But after I'm done with a game, I usually like to spend time on a more active kind of gameplay.

I don't think the genre is dead. But I believe the developers need to shake things up a little. The problem is, most of the great JRPG makers (well, most Japanese devs, really) now have an identity crisis. People wish to get a new console Dragon Quest game that rivals the excellent DQ VIII. What do they do about it? They make DQ X an MMO... ¬_¬

In any case, I think it's just a bad console gen right now, where they tried to shake things up in a way that they just weren't prepared for.

Also, for instance Dragon Quest VIII is probably on that list of Top Selling RPG's. But Dragon Quest IX isn't because it switched to handheld. And this game wouldn't count on his list because it switched platforms. But it sold more than the previous iteration. Though I'm not going to deny they've sold less.

Bioware and Bethesda started their transition last gen but only on xbox.

I'm doubly dissapointed because both JRPG's went from consoles to handheld, and WRPG's went from PC --> console. Resulting in a lot of games inferior technically, or gameplay from the previous generations. There's plenty of Gem's this gen and imo more gems in each genre than last gen.

But the average quality of each title seems reduced.

I think it's up in the air. A lot of RPG fans have abandoned JRPGs to WRPGs that focus more on visuals and different battle systems. JRPGs tend to stick to traditional battle systems and turn based combat, when they do stray they tend to do so a little more conservatively. Of course these are generalizations but I think they hold up pretty well. I think JRPGs will probably continue around where they are in popularity level (and I'll continue to play them as I love them) but I don't see them incorporating the more WRPG elements to gain popularity as it would alienate their fan base, but some do in cool ways (Playing Xenoblade now and very much enjoying it) it's hard to say.

I'd be interested to know if RPGs in general are less popular this gen or if the rise of more casual games (both the Wii Series, etc. and what I would argue is almost as 'casual' for most fans - the FPS games like COD, Halo, etc.) have just overshadowed them in sales.

Funnily enough, one of my top 5 games this gen is Lost Odyssey. A very traditional JRPG.

Then there's one of my most anticipated game right now: Ni No Kuni. Which looks very promising.

But yeah, the quality hasn't been the same since the first PS console. I mean, back then, the system had FF VII-VIII-IX, Suikoden 1-2, Grandia, Lunar SSS and EB, FF Tactics, Legend of the Dragoon, Xenogears, Chrono Cross, Dragon Quest VII, Legend of Mana, Vagrant Story, and the list goes on...

Sure, this gen, we've had some nice titles, but they all felt like rehashes to me, with very few exceptions...